Monday, April 10, 2006

On a borderless world

I ended up unexpectedly reading Kenichi Omhae's book on the coming borderless world - The Next Global Stage. I intended to only flip through the pages at the bookstore, but couldn't resist reading most of it right there.

There are some good examples of capital finding ways to work around artificial trade barriers. One of the most well-known examples, that has also been cited elsewhere, was the failure, despite all efforts by Japanese authorities, to stop the decade-long deflation. After zero/negative interest rates failed to put an end to deflation, Japan tried to pump cash into the economy. But even that didn't seem to help, with most of the money finding its way into higher interest rate economies like Iceland and New Zealand, boosting their currencies.

In the last few weeks though, things seem to have finally changed, with the central bank indicating an end to the pumping. The chilling fallout - dramatic fall in Iceland and New Zealand, along with a few other, currencies. Iceland's stock market also saw a huge drop. Will this end up being the equivalent of the 1997 Thai currency crisis, causing more ripples and some credit events over the next few months ? Very possible, given all the ways the trades are intertwined.

To understand such dependencies, and the more obvious impact of globalization on manufacturing / service / labor market areas, this book is a must read.